Small businesses struggle with overdue payments

A recent survey shows almost one in two small business decision makers have experienced overdue customer payments in the past 12 months, with the majority of customers resorting to excuses for slow payments, according to the Bibby Small Business Barometer by debtor finance specialist Bibby Financial Services.

Bibby Small Business Barometer conducted a survey on over 200 small businesses in Australia (excluding retail) at the end of June 2011, and found the consequences of late payments was significant, with 25 per cent of small businesses experiencing serious cash flow shortages in the past 12 months.

According to Greg Charlwood, managing director of Bibby Financial Services, late payment is a serious problem for small businesses in Australia, with many struggling to meet liabilities on time and many contending with non-payment.

Bibby’s findings are parallel to Dunn & Bradstreet’s recent Trade Payment Analysis for the June quarter 2011, which found the number of ‘severely delinquent’ payments (90 day or more overdue) jumped by almost 20 per cent compared with the June quarter 2010, meaning businesses are waiting for over three months for much needed cash.

The report found smaller firms have struggled the most over the last 12 months, with payment terms blowing out by an average of two days compared with 12 months ago.

According to the Bibby Barometer over half of all small businesses offer early settlement discounts to encourage prompt payment.

Among those that do, a discount in the range of 1 – 4 per cent is most common.

However despite the attractive incentive, 30 per cent of those that offer early settlement discounts find them to be ineffective in encouraging the prompt payment of invoices.

The Bibby survey found 52 per cent of small businesses that deal with big companies and government clients are frustrated with slow payments, and when considering outlook for payments terms, small businesses remain pessimistic.

“Thirty-eight per cent of small businesses are expecting the length of time they must wait to be paid to increase further in the coming quarter, which will no doubt place considerable pressure on cash flow management,” Charlwood said.

“In addition to slow payment terms, other key challenges identified by small businesses in the months ahead include rising interest rates (30 per cent), reduced consumer spending (30 per cent), increased staff wages (29 per cent) and increasing fuel costs (28 per cent). The combinations of these factors suggest tough economic conditions in the future for small businesses,” he said.

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